Call to Order and Roll Call
The2nd meeting of the Interim Joint Committee on Economic Development and Tourism was held on Thursday, July 15, 2010, at 1:00 PM, in Room 154 of the Capitol Annex. Senator Alice Forgy Kerr, Chair, called the meeting to order, and the secretary called the roll.
Members:Senator Alice Forgy Kerr, Co-Chair; Representative Eddie Ballard, Co-Chair; Senators Julian M. Carroll, Julie Denton, Ray S. Jones II, Katie Kratz Stine, Gary Tapp, Robin L. Webb, and Jack Westwood; Representatives Royce W. Adams, John "Bam" Carney, Larry Clark, Leslie Combs, Will Coursey, Jim DeCesare, Mike Denham, Bob M. DeWeese, Ted Edmonds, Jim Gooch Jr., Keith Hall, Mike Harmon, Melvin B. Henley, Joni L. Jenkins, Dennis Keene, Thomas Kerr, Martha Jane King, Adam Koenig, Tom McKee, Tim Moore, Fred Nesler, David Osborne, Ruth Ann Palumbo, Don Pasley, Fitz Steele, Ron Weston, Addia Wuchner, and Jill York.
Guests: Marcheta Sparrow, Cabinet Secretary; Gerry van der Meer, Commissioner, Department of Parks; and Tiffany Yeast, Executive Director, Department of Personnel, Tourism, Arts and Heritage Cabinet.
LRC Staff: John Buckner, Committee Staff Administrator; Karen Armstrong-Cummings, Louis DiBiase, and Dawn Johnson.
Approval of Minutes
A motion and second by Representative Carney and Senator Carroll to approve the minutes of the June 17, 2010, meeting passed by voice vote.
2010 Kentucky State Parks Financial and Operations Strategic Plan
Marcheta Sparrow, Secretary of the Tourism, Arts and Heritage Cabinet reviewed the 2010 state parks strategic plan. Upon coming into office, the Secretary faced a weakened economy and a state government budget crisis. In December 2007, the first budget reduction was enacted due to decreased funding and revenues, maintenance concerns, and increasing personnel costs. With the release of the State Auditor’s report that emphasized a need for stronger financial management in Kentucky’s state park system, the cabinet decided to commission an outside firm to perform a complete review of the parks system and create a strategic plan for the first time in the system’s 85-year history. In January 2009, PROS Consulting, LLC was selected for this task. Eighteen months later, PROS submitted the 2010 Kentucky State Parks Financial and Operations Strategic Plan. Secretary Sparrow said that because of the ongoing budget crisis, the Department of Parks is required to make an additional $6 million general fund reduction in the 2011 budget, and that the system faces closures without the changes recommended in the plan.
Gerry van der Meer, Commissioner, Department of Parks, gave an overview of the parks system and the strategic plan. With 51 state parks and 17 resorts, Kentucky has the highest number of resorts and rooms among all states. Kentucky is ranked third nationally in the number of state-operated marinas and second in the number of golf courses. Restaurant revenues are $14 million per year.
To conduct the study, PROS reviewed the parks system at all levels. They conducted focus groups, surveyed guests, performed site inspections, and completed a full asset inventory. Primary areas of focus were performance improvement recommendations for the next five years, organizational strategies for strategic growth and improved market position, asset management strategies to improve and maintain site and facility conditions, and funding and resource strategies to improve financial and budgetary management practices.
Commissioner van der Meer reviewed the key recommendations of the study. To cut expenses and increase the quality of services over the next five years, the Department of Parks must improve daily operations and address key areas of poor performance such as loss of money in food services and golf courses. They must shift from an effort-based culture to an outcome-based culture. Parks must implement more progressive business practices and outcomes, streamline expenses, improve earned revenues, create innovate partnerships, and ensure customer satisfaction. Since the parks system has insufficient resources to meet current needs, it must find new avenues of funding and more efficient ways of doing business. Recommendations include restructuring rates and fees, cutting expenses, streamlining operations, creating partnerships increasing revenue from programs and events, and planning programs and services to better meet user needs and interests. Parks must develop and implement programs that have the greatest appeal to wider audiences. Better programming will increase overnight guests at lodges and campgrounds.
Commissioner van der Meer said key recommendations from the study include using a sales approach to marketing. Parks must create a proactive team with targeted goals and objectives that are measured and monitored on a regular basis. Tools for increased sales should include incentives, reward programs, customer follow-ups with feedback opportunities and packaging.
Parks must also develop a standardized process for identifying, evaluating, prioritizing capital projects, the commissioner said. A regular maintenance schedule should preserve and protects assets.
Secretary Sparrow said management of the state parks brand can influence the success of marketing and promotions. Guests should be encouraged to stay longer and use more services and amenities during their visits. Better events and programs can be used to increase guests’ length of stay as well. Amenity recommendations in the plan include the sale of liquor by the drink at meetings, conferences and social events as well as packaged beer sales for golf outings at parks located in “wet” areas. Parks management must provide better training and more recognition for high quality work by its employees with emphasis on outcome versus effort. Kentucky parks need legacy programming that establishes enduring themes and perceived quality for visitor experiences. Recommendations include themed categories designed to highlight each park’s unique attributes.
Commissioner van der Meer reviewed the department’s short-term improvement recommendations. He said the Department of Parks did not wait for the study to be completed before taking steps to become more efficient and improve management and services of the parks.
Regardless of the study recommendations, Commissioner van der Meer said the steps in the Cost Avoidance Plan were necessary to cut $6 million from the department budget. Full-time employees will now work 37.5 hours per week instead of 40, temporary employment services will be used for seasonal staff, Ben Hawes State Park was transferred to the City of Owensboro, seasonal schedule reductions at all parks will be implemented, concessions at dining rooms in selected parks and all golf operations will be implemented to eliminate debt carryover. The estimated total cost avoidance for fiscal year 2010-2011 is $6,029,000 and $6,054,000 for 2011-2012.
Secretary Sparrow said all parks will remain open, park employees will have jobs, and Kentucky will regain and sustain the title of the “Nation’s Finest Park System” under the strategic plan.
Commissioner van der Meer addressed concerns expressed about the plan. He said the Department is not privatizing the state park system but simply allowing concession operations for two park services—food and golf. He noted that marina operations at nine parks have successfully operated in this fashion for several years now.
Tiffany Yeast, Executive Director of the Department of Personnel for the cabinet, addressed the changes in hours worked by full-time employees. She noted that the change will become effective July 16. The change to a 37.5 hour work week is consistent with most state employees. The department is currently looking for a temporary employment agency to handle all seasonal labor, however, park managers will be involved and have the final decision.
Commissioner van der Meer said that during the winter, all resort parks will be closed Sunday through Tuesday evening due to single digit occupancy rates. However, if a large group makes a request, the park will consider opening to accommodate them. The parks will be open Wednesday afternoon through Sunday during mid-November through mid-March.
Secretary Sparrow said that concessionaires will be allowed to operate or seek liquor licenses at parks in “wet” areas. Bars and cocktail lounges will not be permitted. This amenity plays a big role in attracting meetings, conferences, weddings and other events at the parks. In working with the Alcohol Beverage Control Board three resort parks have been identified for liquor sales: Lake Barkley, General Butler and Jenny Wiley. Three golf courses will allow package beer sales: My Old Kentucky Home State Park, John James Audubon State Park, and Kincaid Lake State Park.
With three state resort parks and a golf course in her district, Senator Webb expressed concern about the unintended consequences of some of the plan proposals. Senator Webb pointed out that the parks are part of the community where as concessionaires are profit driven, and that there will be a financial impact on the community by cutting staff hours and hiring temporary labor.
Senator Webb asked if a cost-benefit analysis had been performed. Ms. Yeast said the immediate cost savings by using temporary employment services is reflected in a reduced amount of unemployment and workers’ compensation funds paid out, as well as no longer having to pay leave time to interim employees. This responsibility will be shifted to the temporary agency. Efficiency will be increased by having an immediate seasonal labor pool when it is needed. The current process of using state-hired employees is inefficient, Ms. Yeast explained. It takes approximately two weeks to hire state government employee. Using a temporary service allows more flexibility. Responding to Senator Webb’s question she said based on all statewide contracts, wage rates will mostly equal what current interim employees make with some skilled labor such as landscapers making a higher rate. Senator Webb said she understand the immediate need for workers during events but expressed concern about completely replacing state employees with temporary workers, which would change the face of employment in Kentucky’s parks system. She noted that privatization of the prison system has seen high turnover, low wages, and low benefit jobs. Commissioner van der Meer said through his management company experience in running high-end accommodations their charge is to be profitable and be involved in the community. Ohio parks are fully concessioned and West Virginia is partially concessioned and both have been successful for years. He said most of the recommendations are economy related and designed to save money. Most concessionaires have better buying power, do not have government limitations, and have expertise.
Responding to Co-Chair Ballard’s question, Secretary Sparrow said there is not a detailed estimation of alcohol sale profits. Commissioner van der Meer said using industry estimations based on a total dinner meal count with ten percent purchasing a drink having an average retail price of $3.75, this would bring in $142,000. More importantly, there is an assumption for increased occupancy rates. Many groups cannot or do not meet at the lodges due to the inability to serve alcohol. A one-percent increase in occupancy would bring $184,000. Co-Chair Ballard said he has received mostly positive feedback about alcohol sales at the parks from constituents in his area.
Responding to Representative Palumbo’s question, Secretary Sparrow said that although budget cuts were a factor, it was necessary to implement some of the study’s recommendations for the future of the parks system. Commissioner van der Meer said there were two other important factors beside the $6 million budget cut. He said the agency’s $30 million funding level is about the same as it was in 2003. Increases in retirement contributions in those seven years have increased $2.5 million, and health insurance has increased $2.7 million.
In response to Representative Palumbo’s questions, Secretary Sparrow said the national parks system is concessioned and the Kentucky State Fair Board and the Kentucky Horse Park hold a liquor license.
Representative DeCesare said the department is headed in the right direction in making the parks profitable. He asked for more information on the alcohol sales projections as the numbers were lower than expected.
Representative DeCesare questioned the need for four marketing specialists and a public relations employee within the agency. Secretary Sparrow explained that the size of the parks system warrants the need for these employees. She said the agency has only $350,000 for marketing expenditures. Representative DeCesare said a private vendor may fill the need for marketing as well.
Responding to Representative Wuchner’s questions, Commissioner van der Meer said the occupancy rate for 2009 was 50 percent and roughly 47 percent for 2010. The one percent room tax collected by the state parks is returned to their marketing program, which is approximately $175,000 annually.
Representative Wuchner said the strategic plan should have specific marketing outcome measures.
Representative Koenig said he supports the changes proposed in the plan and would like to see more considering the general fund provides a $30 million subsidy to run the state parks system.
Responding to representative Koenig’s question, Commissioner van der Meer said through PROS Consultants they are changing the mindset of parks employees at all levels to be result-driven.
Represented McKee noted that the Agriculture Committee used the facilities at Kentucky Dam Village for their July meeting. He said park visitors contribute to the local economy as well through purchases.
Responding to Representative McKee’s question, Ms. Yeast said the employee hours worked will remain at 37.5 and will not revert back to 40 hours per week. There is the potential of moving to a seasonal 30 hour week during the off season. Previously, hours have been reduced from 40 to 25 hours per week during the off season. Representative McKee expressed concern about the effects of reducing employee pay.
Referring to Senator Stine’s question, Commissioner van der Meer said some energy efficiency measures at the parks have been addressed by PROS Consultants.
The Commissioner said that PROS Consultants has been looking toward other state park systems that have been doing well comparison.
Representative Carney said the financial effect of state parks on small communities is immeasurable.
In response to Representative Pasley’s question, Ms. Yeast said the reduction in state park staff hours will be flexible based on seasonal demands.
Representative Coursey expressed concern about the effect of reduced hours on parks employees' benefits. Ms. Yeast said reducing hours during the non-peak season is not new to state parks. She said health benefits will not be reduced but it will affect retirement benefits as retirement is based on gross wages. Ms. Yeast said the cabinet is now looking at different types of hour reductions in light of the governor’s mandated six furlough days in this fiscal year.
Responding to Representative DeWeese’s question Secretary Sparrow said the Department of Parks does not have funding for television advertising. The agency has advertised through public radio, e-newsletters, Facebook, and co-partnered through KET, as well as promotionals by golf professionals.
Representative York asked if there was a correlation between the better performing parks and those with more opportunities for stay-over visits. Commissioner van der Meer said some rural areas have lower attendance during the off-peak season because of limited attractions. Tour packages such as coal mines and wineries are being considered.
Representative King suggested adding more “dry” camp sites for RVs at state parks. Commissioner van der Meer said there are camping sites at many recreational areas such as Fort Boonesboro. He said other historic sites should be looked at as well.
Representative Moore expressed concern about the effects of allowing alcohol into Kentucky’s state parks as it may have a detrimental effect on traditional family visits and loyal customers. He also recommended marketing to writers’ guilds and cycling groups.
Responding to Representative Denham’s question, Commissioner van der Meer said the department is saving $1.6 million by changing to a 37.5 hour work week. Representative Denham said he hoped the hour reduction plan is short-lived as it puts a tremendous burden on employees who already suffer because of the recession.
In response to Representative Denham’s question, Secretary Sparrow said equestrian facilities are being developed at Carter Caves and Pennyrile State Parks. She said statewide trail operations are being looked at as well.
Commissioner van der Meer said parks employees are the chemistry to the parks. He said the agency regrets having to implement these types of reductions. He said difficult decisions had to be made in order to meet budget needs.
Representative Palumbo expressed concern about the closing of Delta’s Terminal C which is affecting Kentucky’s economy. Employees are losing their jobs and scheduling is becoming more difficult. Representative Palumbo asked that the committee meet to discuss the topic further.
There being no further business, the meeting adjourned at 2:45 PM.